Meeting the Demand for Microfinance in the West Bank and Gaza

Assessing the Palestinian microfinance sector: obstacles and recommendations for reforms
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This paper discusses an assessment of the Palestinian microfinance sector done by CGAP. The paper highlights the existing environment of microfinance including:

  • The demand for microfinance services in the West Bank and Gaza;
  • An overview of Palestinian microfinance sector:
    • Number of MFIs operating in the region;
    • Adequacy of management information systems;
    • Types of financial services provided to the poor.
  • The extent of dependence on donor funding for microfinance;

The paper mentions the legal forms currently available for engaging in microfinance:

  • NGO;
  • Cooperatives;
  • For profit company;
  • Nonprofit company;
  • Banks;
  • Specialized lending institutions and other finance companies.

The paper also describes the legal and regulatory issues pertaining to microfinance highlighting:

  • The unlikely expansion of NGO operations as they are:
    • Not entitled to raise equity from investors;
    • Required to get their legal documents signed by the chairman, limiting efficient operations in multiple locations;
    • Regulated by MOI which is not an appropriate body to regulate financial institutions.
  • Lack of appropriate regulator for:
    • MFIs doing on-lending business;
    • Savings and credit cooperatives.
  • Disadvantages for a for-profit MFI with respect to tax treatment.

The paper provides recommendations to donors and government officials on the following areas:

  • Capacity building;
  • Infrastructure supporting microfinance;
  • Funding;
  • Regulatory and policy framework for financial institutions providing microfinance services;
  • Government policy towards poor Palestinians who are not ready to be consumers of conventional microfinance services.